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Agriculture sector thrown into the deep end

ZIMBABWE’S basket-case tag could continue to stick amid growing fears that the majority of farmers do not have the financial capability to boost agricultural productivity this year.

With no cheap funding from the Reserve Bank to dish out to farmers through concessionary facilities, government projections of a 24,3% growth in agricultural productivity could be unattainable, agricultural experts said. Government requires US$880 million for the summer cropping season, a figure representing more than 80% of the US$1 billion National Budget presented in March.
Farmers who have in the past benefited from quasi-fiscal interventions carried by the central bank generally resent government’s policy shift in financing, marketing and pricing agricultural commodities. The move was inevitable owing to deteriorating economic conditions.
Also troubling the sector are farm disruptions reportedly affecting the remaining white commercial farmers.
The new policy which, among other things, eased the central bank’s supra ministerial interventions and liberalised the commodities market was necessitated by the introduction of the multi-currencying of the national payments system on the back of unprecedented hyperinflationary levels.
Finance Minister Tendai Biti, presenting his mid-year fiscal policy statement last Thursday, said this policy shift had resulted from government indebtedness.
“With regards to financing, this shift was driven by the need to find an effective and sustainable means of financing agriculture given the resource constraints facing government and the potential financing capacity of the banking system, other private players, including farmers themselves,” Biti said.
But farmers’ organisations are pessimistic about the future due to this policy change.
Zimbabwe Commercial Farmers Union president Wilson Nyabonda, is on record saying no farmer had received any lines of credit from banks.
“We are yet to hear of any farmer who has received funding under the announced lines of credit,” Nyabonda said. “We want contractors to source offshore funds and start engaging in contract farming instead of crowding around funds sourced by the government.”
Renson Gasela, a commercial farmer based in the Midlands who is also the deputy secretary of information in the Arthur Mutambara-led MDC said: “Farmers are in a dilemma. GMB has the best price for maize but they are undercapitalised. On the other hand other buyers have cash but are offering lower prices.”
The court case involving Karoi farmers that successfully sought an interdict barring a local buyer from purchasing maize below the gazetted price could be a tip of the iceberg on farmers’ preparedness to finance agriculture under prevailing economic conditions.
“I don’t know whether most farmers received loans for the winter crop because of unviable loan requirements. They are unviable in the sense that they should be serviced in three months before the crop is ready for marketing,” Gasela said. “It is not working at the moment and unless something is done quickly we are going to have a serious problem next season.”
According to Gasela, a former GMB general manager, a farmer currently needs to sell two tonnes of maize to grow a hectare of the crop.
Bankers Association of Zimbabwe president John Mangudya, however, said banks were only prepared to support better performing farmers, adding that some farmers were failing to manage income generated from sales.
“Agriculture is a business and because of that income from produce sold should be ploughed back into the business,” he said. “We need to have good business ethics whereby farmers who have received sales should plough back to business as opposed to waiting for loans from banks.”
Mangudya blamed hyperinflation which the International Monetary Fund said reached 500 billion percent by December 2008 for declining agricultural productivity.
Hyperinflation, he said, was an “anti-production disease” which was “cured” by the introduction of various foreign currencies to the national payment system.
Banks, according to the BAZ president, are currently operating at up to 40% capacity.
“The current national payments system has exposed banks to be more cautious to risk management. Banks require better performance (from farmers who borrow money) to ensure sound financial intermediation”, Mangudya said.
Financial institutions, Mangudya added, have modelled two forms of loans for farmers. On the one hand farmers can apply for working capital for the winter and summer crops. He said close to US$50 million has been made available by banks under that category.
Mangudya said over US$200 million in loan advances for farmers had been sourced from bank deposits.
The second form of financial assistance, according to Mangudya, is channelled to tobacco and cotton merchants to buy crops from farmers.
Apart from lines of credit sourced from regional and international lenders, government has received assistance from international aid agencies and donor organisations. 
Total financial requirements for crop input packs for communal farmers during the 2009/10 summer cropping season amount to US$142,4 million.
“Of this requirement, a total of US$66,5 million has so far been provided … by the European Union (EU), United States, United Kingdom, Ireland and Japan through the Food and Agricultural Organisation (FAO),” reads Biti’s mid-term fiscal statement. “This support is expected to benefit more than 600 000 households, and the inputs will be distributed through established local non-governmental organisations.”
Economist Daniel Ndlela said an end to quasi fiscal activities by the Reserve Bank could signal the resuscitation of the sector.
“In my view, the cessation of the Reserve Bank in the quasi fiscal arena as a whole, including agriculture, should come as a positive development,” Ndlela said. “The central bank’s involvement in Agricultural Sector Productive Enhancement Facility was in direct proportion to the decline of agriculture. Agriculture failed because of inflationary finance. Their intervention fuelled a black market for fuel and other inputs. We reaped misery from such policies.”
Government, Ndlela said, could resuscitate agricultural productivity through an affordable credit regime, technological improvement, notwithstanding good climatic conditions.
ZB Bank chief economist Best Doroh said “handouts” to farmers should be discouraged.
“The issue of giving handouts should be discouraged and replaced with facilities that value productivity,” he said. “Zimbabwe’s agricultural sector can move from being a basket case to a bread basket in the region when there is major capital injection in the form of lines of credit.”

Bernard Mpofu

 

 

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